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Discussion Paper
The cyclical behavior of job creation and job destruction: a sectoral model
Greenwood, Jeremy; Zhang, Guang-Jia; MacDonald, Glenn M. (1994)
Three key features of the employment process in the U.S. economy are that job creation is procyclical, job destruction is countercyclical, and job creation is less volatile than job destruction. These features are also found at the sectoral (goods and services) level. The paper develops, calibrates, and simulates a two sector general equilibrium model including both aggregate and sectoral shocks. The behavior of the model economy mimics the job creation and destruction facts. Sectoral shocks play a significant role in determining the aggregate level of nonemployment.
Discussion Paper / Institute for Empirical Macroeconomics , Paper 88

Discussion Paper
Start-up costs and pecuniary externalities as barriers to economic development
Matsuyama, Kiminori; Ciccone, Antonio (1993)
One critical aspect of economic development is that productivity growth and a rising standard of living are realized through more roundabout methods of production and increasing specialization of intermediate inputs and producer services. We use an extended version of the Judd-Grossman-Helpman model of dynamic monopolistic competition to show that an economy that inherits a small range of specialized inputs can be trapped into a lower stage of development. The limited availability of specialized inputs forces the final goods producers to use a labor intensive technology, which in turns ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 83

Discussion Paper
On the economics of fiscal populism in an open economy
Benhabib, Jess; Velasco, Andres (1995)
We study a representative agent, open economy in which government-provided services that enter the domestic production function must be financed with distortionary taxes, and focus on the optimal size of government and the associated optimal tax rate. If the government can precommit its actions, it maximizes individual welfare by announcing and implementing a constant tax rate, which we label the orthodox tax rate. This tax rate is time inconsistent, and under discretion the government implements a tax that maximizes each periods output. We label this the populist tax rate. It may be higher ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 97

Discussion Paper
Optimal welfare-to-work programs
Violante, Giovanni L.; Pavoni, Nicola (2005)
A Welfare-to-Work (WTW) program is a mix of government expenditures on passive (unemployment insurance, social assistance) and active (job search monitoring, training, wage taxes/subsidies) labor market policies targeted to the unemployed. This paper provides a dynamic principal-agent framework suitable for analyzing the optimal sequence and duration of the different WTW policies, and the dynamic pattern of payments along the unemployment spell and of taxes/subsidies upon re-employment. First, we show that the optimal program endogenously generates an absorbing policy of last resort (that we ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 143

Discussion Paper
A business cycle model with nominal wage contracts and government
Phaneuf, Louis; Cho, Jang-Ok (1993)
We incorporate nominal wage contracts and government into a quantitative general equilibrium framework. Thus, our model includes three types of shocks: a fiscal shock, a monetary shock, and a technology shock. We show that it is possible in this type of environment to generate a low correlation between hours worked and the return to working, a moderately negative correlation between output and aggregate prices and a moderately positive correlation between the real wage rate and output. In sharp contrast with RBC models with indivisible labor, wage contracts magnify mainly the effect of ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 80

Discussion Paper
The demand for money by firms: some additional empirical results
Mulligan, Casey B. (1997)
COMPUSTAT data on 12,000 firms for the years 1956-1992 indicate that large firms hold less cash as a percentage of sales than do small ones. Whether comparisons are made within or across industries, the elasticity of cash balances with respect to sales is about 0.75. Firms headquartered in counties with high wages hold more money for a given level of sales, a finding consistent with the idea that time can substitute for money in the provision of transactions services. The estimates are consistent with both scale economies in the holding of money and secular declines in velocity.
Discussion Paper / Institute for Empirical Macroeconomics , Paper 125

Discussion Paper
Fluctuating risk in an aggregated Ss-model
Hassler, John (1996)
Using U.S. data it is shown that as the stock market goes into a period of high volatility, nondurables consumption is unaffected but durables consumption falls substantially. It is argued that a plausible explanation for this is that consumers face irreversibilities when adjusting their durables stock. They will thus apply Ss-type rules with bandwidths with widths that vary over time as in Hassler (1996). To quantify the aggregate implications of such behavior an aggregated irreversible investment model for consumer durables is estimated on U.S. It is found that a shift to higher risk leads ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 113

Discussion Paper
Comparing predictive accuracy I: an asymptotic test
Diebold, Francis X.; Mariano, Roberto S. (1991)
We propose and evaluate an explicit test of the null hypothesis of no difference in the accuracy of two competing forecasts. In contrast to previously developed tests, a wide variety of accuracy measures can be used (in particular, the loss function need not be quadratic, and need not even be symmetric), and forecast errors can be non-Gaussian, nonzero mean, serially correlated and contemporaneously correlated.
Discussion Paper / Institute for Empirical Macroeconomics , Paper 52

Discussion Paper
Entrepreneurial moral hazard and bank monitoring: a model of the credit channel
Repullo, Rafael; Suarez, Javier (1999)
This paper develops a model of the choice between bank and market finance by entrepreneurial firms that differ in the value of their net worth. The monitoring associated with bank finance ameliorates a moral hazard problem between the entrepreneurs and their lenders. The model is used to analyze the different strands of the credit view of the transmission of monetary policy. In particular, we derive the empirical implications of a broad credit channel, and compare them to those obtained when the model is extended to incorporate some elements of the bank lending channel.
Discussion Paper / Institute for Empirical Macroeconomics , Paper 129

Discussion Paper
Seigniorage and the welfare cost of inflation: evidence from an intertemporal model of money and consumption
Eckstein, Zvi; Leiderman, Leonardo (1991)
This paper empirically investigates the restrictions embodied in a popular dynamic monetary model for the cross relations between consumption, money holdings, inflation and assets returns using quarterly data for the high-inflation economy in Israel, 19701988. The model considered includes money in agents utility function. A set of the estimated parameters is used in the analysis to assess the models quantitative implications for seigniorage and for the welfare costs of inflation. The estimates are found to account well for the observed stability over time of seigniorage in Israel and imply ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 40

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